Fintech stocks are scorching hot this year and Square (NYSE: SQ) is leading the charge. That’s good news for the ARK Fintech Innovation ETF (NYSEARCA: ARKF), the exchange traded fund with the largest weight to the stock.
ARKF member firms are companies that are powered by innovations, working to disintermediate or bypass the current financial markets and challenge traditional institutions by offering new solutions that are better, cheaper, faster, and more novel and secure.
ARKF’s Square exposure is meaningful on multiple levels, including the fact that customers actually like the company. That’s a rarity when it comes to financial institutions because many folks simply don’t like their banks. Analysts are full of praise as well.
Last week, Mizhuho analyst Dan Dolev boosted his Square price target to $300.
“Dolev argues that Square is finding attractive new ways to monetize Cash App, which competes with PayPal’s (PYPL) Venmo and other peer-to-peer payment services. Square makes money off the app by charging fees for instant deposit, which accounted for 54% of the app’s gross profits in the third quarter, Dolev estimates,” reports Darren Fonda for Barron’s.
Square and Bitcoin Are Mutually Reinforcing
Making ARKF’s Square exposure all the more compelling is that Cash App and digital wallets in general, are not being appropriately factored into fintech share prices. Nor is brand value as it pertains to Square.
“Dolev increased his gross profit estimates from the app from $2.8 billion in 2020 to $7.7 billion by 2023 as its user base jumps from 32 million to 66 million active users. Cash App is also gaining on Venmo in the 15 most populous states, based on Google searches, he adds. Cash App accounted for 60% of searches in key markets since April, up from 39% in 2018,” according to Barron’s.
Fintech allows financial firms to leverage cutting edge technology to reduce costs, improve decision making and risk controls, remove middlemen, and enhance customer experiences. A thematic approach includes investments that stand to benefit from structural change driven by demographic and technological changes. Square is also benefiting from Bitcoin’s recent ascent.
“Square acts as a broker for Bitcoin, buying the digital currency and selling it to customers, who store and trade it on Cash App. Square benefits when Bitcoin prices rise and volume increases. Bitcoin prices have more than doubled this year, including a surge of more than 80% since September. But if demand and pricing plummet, so too will Square’s gross profits,” reports Barron’s.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.